UPDATE 4-Facebook aims to take centerstage on Android phones

Reuters Staff

7 Min Read

* AT&T will sell HTC-made “Home” exclusively, price $100

* Facebook takes battle for ad revenue, user times to Google

* Facebook’s shares climb, Google’s fall

By Gerry Shih

MENLO PARK, Calif., April 4 (Reuters) - Facebook Inc on Thursday unveiled its most ambitious attempt yet to enter mobile computing without a phone of its own, introducing a new app that replaces the home screen on some Android smartphones.

Called “Home,” the new software lets users comprehensively modify Android, the popular mobile operating system developed by Google, to prominently display their Facebook newsfeed and messages on the home screens of a wide range of devices - while hiding other apps.

“Why do we need to go into those apps in the first place to see what’s going on with those we care about?” Facebook Chief Executive Mark Zuckerberg told the hundreds of reporters and industry executives gathered at the company’s Menlo Park campus.

“We want to bring all this content to the front.”

The “Home” software will be available for download for free from Google Play starting April 12. In addition, AT&T Inc has exclusive rights to sell for $100 the first handsets, made by Taiwan’s HTC Corp, that come pre-installed with the software starting the same day. France Telecom’s Orange will be offering the phone in Europe.

Shares in Facebook finished trading up 82 cents, or 3.1 percent, at $27.07; Google stock closed at $795.07, down $11.13 or 1.38 percent.

Analysts say should the new software take off, it may begin to draw users away from Google services. Offering Facebook messaging, social networking and photos on the very first screen that Android users see could divert attention from the panoply of services, such as search and email, which generate advertising revue for Google.

Instead of traditional wallpaper or a “lock screen,” users with Home installed will see a new Facebook “cover feed” that displays a rolling ticker-tape of photos, status updates - and eventually, ads - from Facebook’s network.

Facebook’s executives, acknowledging that messaging and communications remain the most fundamental use for smartphones, also showed off a new “chat heads” messaging interface, which would combine SMS text messages and Facebook chat messages under one tool.

“On one level, this is just next mobile version of Facebook,” Zuckerberg said. “At a deeper level, this can start to be a change in the relationship with how we use these computing devices.”

People who used the software and the HTC phone on Thursday appeared impressed by the highly visual design and interface that featured a multitude of pictures. But analysts say the jury is still out on whether Home has appeal beyond habitual Facebook users.

Some were skeptical consumers would leap at the chance to make Facebook so central to their lives.

“Facebook thinks it’s more important to people than it actually is,” said Charles Golvin, an analyst at Forrester Research.

Golvin said that in markets like Spain and Brazil, mobile users spend far more time in messaging apps like Whatsapp compared to the Facebook app.

“For the vast majority of people, Facebook just isn’t the be-all and end-all of their mobile experience. It’s just one part,” he said. “I see a more apathetic response among Facebook users than Facebook might be expecting.”

COMPETITION WITH GOOGLE

Facebook’s wide-reaching mobile strategy could heighten its competition with Google, the dominant Internet search engine and the developer of Android with whom it is locked in a battle for Internet users’ time online and for advertising dollars. But if it proves to be popular among Android users, Home could also place the two companies in something of an uneasy partnership.

More than 750 million mobile devices featuring Android have been activated to date, according to Google, more than gadgets based on Apple Inc’s iOS, the runner-up.

Zuckerberg downplayed the rivalry even as he praised Google’s willingness to let other companies tinker with Android. He said he was confident Google would not make changes to Android that would hamstring Facebook.

“If 20 percent of time people are spending on their phones is in Home, I really think they’re going to have a hard time making a rational decision” to limit Home’s functionality, Zuckerberg told reporters.

“The Android platform has spurred the development of hundreds of different types of devices,” the company said. “This latest device demonstrates the openness and flexibility that has made Android so popular.”

Not everyone is sure that Google will remain neutral.

“Google has made Android open, but as they release the next version, are they going to be as open?” said Simon Mansell, the chief executive of TBG Digital, an advertising technology provider. “Facebook is hiding all the Google stuff with their own stuff, and how Google will respond is interesting.”

For Facebook - founded in Zuckerberg’s dorm room in 2004 as a website - bolstering its mobile presence is critical. Nearly 70 percent of Facebook members used mobile devices such as smartphones and tablets to access its service at the end of 2012, and 157 million of Facebook’s roughly 1 billion users accessed the service solely on a mobile device.

The company has stepped up efforts to ensure that its revenue-generating ads can be viewed on mobile devices and Zuckerberg has said that the company’s engineers are now focused on creating “mobile-first experiences.”

Zuckerberg said features like cover feed will be ad-free initially, but he envisioned advertising as another form of content that will eventually be integrated. Analysts say the company treads cautiously when introducing ads into any of its services, wary of infuriating users.

“This is about becoming more deeply embedded in the operating system on mobile devices, and creating a broader platform,” said Jan Dawson, chief telecoms analyst for the research firm Ovum. “It will allow Facebook to track more of a user’s behavior on devices, and present more opportunities to serve up advertising.”

But “that presents the biggest obstacle to success for this experiment: Facebook’s objectives and users’ are once again in conflict. Users don’t want more advertising or tracking, and Facebook wants to do more of both.”

Reports that Facebook was developing its self-branded smartphone have appeared sporadically and Zuckerberg has shot them down, as he did again on Thursday.

But with specialized software that adds a layer on top of Android, Facebook may get many of the benefits of having its own phone without the costs and risks of actually building a hardware device, analysts said.

“It’s much lower risk than developing a phone or an operating system of its own, and if it turns out not to be successful, there will be little risk or loss to Facebook,” Dawson said. “If it does turn out to be successful, Facebook can build on the model further and increase the value provided in the application over time.”